Texas is still lagging far behind many states in regulating payday loan operations. Many consumer advocates want tougher rules and clearer disclosures so that fewer low-income families find themselves struggling to repay payday loans which often come with interest of up to 400 percent. The payday loan industry argues that they are offering a valuable service to those who have no other options, while consumer advocates insist that many borrowers simply don't understand that payday loans are very risky and expensive.
The reality is that while it is true that many borrowers don't really understand the risk they are taking on when they sign up for a payday loan, it is also true that there aren't many options for short-term loans available for those with low-income, bad credit and no savings. Payday loans offer a quick and expensive way to remedy short-term problems while simultaneously creating even bigger long-term problems for borrowers. Many borrowers already struggling financially enter into a vicious cycle of indebtedness when they sign-up for payday loans and this is something that can only be addressed through stiffer regulations.
Many oppose stiffer regulations on the payday loan industry because they say that it will create an environment where payday lenders will disappear. But the reality is that if there is a need for short-term loans such as payday loans and there is profit to be made, players will always be willing to operate even amidst tougher standards. Just as we regulate housing and electronic goods, we must also regulate payday lending so that borrowers can at least receive a product which is not automatically a "poison" pill to their financial health.